Janine Cox, Wealth Within
BUY RECOMMENDATIONS
Santos (STO)
Chart: Share price over the year versus ASX200 (XJO)
Energy stocks like STO can be quite volatile, and so are their fortunes, but I believe most portfolios should have exposure to the sector. Following a recent break above resistance at $15, STO is testing support for a further rise. A strong move above $15.30 would confirm this rise is likely to continue. The shares closed at $14.73 on September 10.
Automotive Holdings Group (AHE)
Chart: Share price over the year versus ASX200 (XJO)
As this stock is outside the top S&P/ASX100, volatility can be high and liquidity low, therefore AHE is a stock for traders, and not for buying and holding. Short term, a strong weekly close above $4.10 is likely to indicate the share price may soon break through the all-time high of $4.43 in June 2007. The shares finished at $3.85 on September 10.
HOLD RECOMMENDATIONS
Woodside Petroleum (WPL)
Chart: Share price over the year versus ASX200 (XJO)
It’s been some time since WPL was labelled a trending stock given its often erratic nature. However, I believe the healthy dividend at around 5.4 per cent is changing the oil and gas giant’s form. While WPL’s weekly price chart remains in trend, I see further upside, with share price resistance likely between $48 and $50.
M2 Group (MTU)
Chart: Share price over the year versus ASX200 (XJO)
This telecommunications stock was temporarily held back by the GFC, but since 2009 the share price continued to break to new all-time highs. Current analysis indicates the stock is trading around a short term level of resistance between $8 and $8.50, therefore be prepared to consider taking some money off the table. The stock closed at $7.86 on September 10.
SELL RECOMMENDATIONS
Mount Gibson Iron (MGX)
Chart: Share price over the year versus ASX200 (XJO)
Iron ore stocks are out of favour with the commodities cycle still in decline. Smaller miners with higher costs are feeling the pinch. Although this situation will eventually turn, if you still have some exposure here, then it’s time to check stop losses and exit if triggered.
BlueScope Steel (BSL)
Chart: Share price over the year versus ASX200 (XJO)
BSL recently gapped down significantly during reporting season, with analysts indicating the company is likely to continue disappointing the market with further downgrades to earnings forecasts. Those still holding BSL should ask why, particularly if the price closes back below $5.34. The shares closed at $5.52 on September 10.
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Michael Gable, Fairmont Equities
BUY RECOMMENDATIONS
BHP Billiton (BHP)
Chart: Share price over the year versus ASX200 (XJO)
For the past year, BHP has been range trading between $35 and $38. In the run up to its full year results in August, the market pushed the stock into $39 levels before falling dramatically in the absence of a capital return. With the slide in iron ore prices also weighing on the stock, you will notice that BHP recently again drifted back to the bottom of its recent range. Momentum indicators, such as the Relative Strength Index, show BHP to be oversold below $36. It has also moved to a yield approaching 4 per cent, including franking. As a result, we expect BHP to find buyer support and begin to move higher again. The shares were trading at $35.64 on September 11.
Seek (SEK)
Chart: Share price over the year versus ASX200 (XJO)
A lot of brokers are negative on the stock because it trades on a high price/earnings multiple. We argue that investors shouldn’t be worried about high PE stocks if they can justify it. SEK has broken to the upside of a continuation pattern and looks like rallying higher from here. Based on the charts, SEK is likely to gravitate towards $20, so at current levels it appears to be an attractive trade on the long side. The shares were trading at $17.33 on September 11.
HOLD RECOMMENDATIONS
Ainsworth Game Technology (AGI)
Chart: Share price over the year versus ASX200 (XJO)
AGI was sold down at its recent report. It was recently trading on a price/earnings multiple around 14 times, which is attractive from the viewpoint that earnings per share growth in fiscal year 2015 is forecast to be about 17 per cent. In terms of the chart, the share price trended down into this result, so a big move down on volume is indicative of an exhaustive low, where the last of the sellers give up. We’ve also seen a buy signal on the Relative Strength Index. Downside now appears limited.
JB Hi-fi (JBH)
Chart: Share price over the year versus ASX200 (XJO)
At current levels, the stock appears to be factoring in a negative case scenario given the one year forward price/earnings multiple was recently around 12 times. JBH is still well leveraged to a recovery in consumer confidence and spending. It has increasing exposure to stronger residential construction, via its Home offering. The JBH chart shows the stock broke below support when it went ex-dividend. It has since formed a “morning star” reversal on the candlestick chart and has also bounced out of oversold territory on the RSI three times. Further downside appears limited and we should see it start moving higher gain.
SELL RECOMMENDATIONS
Primary Health Care (PRY)
Chart: Share price over the year versus ASX200 (XJO)
Although the stock looks cheap, regulatory risks remain and we expect them to weigh on the stock. Lower cash flow generation also threatens the company’s ability to maintain the current dividend payout ratio. The stock has been in a downtrend for more than a year. It recently hit the downtrend line and was sold off on strong volume. It appears the stock is destined to at least the low $4 levels. So even at current levels, it appears to be more of a sell than a buy. The shares were trading at $4.40 on September 11.
Insurance Australia Group (IAG)
Chart: Share price over the year versus ASX200 (XJO)
Revenue growth is slowing, cost reductions can’t continue forever and margins could come under pressure. IAG has also lost more market share compared to Suncorp. The chart is looking peaky and we would be worried to hold IAG up here if an unexpected catastrophe were to occur. The share price could be at risk, so we would look to sell IAG at these levels.
Joshua Stega, JAS Wealth
BUY RECOMMENDATIONS
Recall Holdings (REC)
Chart: Share price over the year versus ASX200 (XJO)
Recall provides secure document storage. Recall’s largest competitor in the US, Iron Mountain, recently announced it was converting to a real estate investment trust, which has the effect of reducing its average tax rate from 35 per cent to 17 per cent. If REC followed this lead, the share price could rise between 68 cents a share and $1.57 depending on the costs of implementation. We’re buyers at current levels. The shares closed at $4.92 on September 10.
Steadfast Group (SDF)
Chart: Share price over the year versus ASX200 (XJO)
A large insurance network consisting of 280 brokerages across Australia and New Zealand. SDF delivered a fiscal year 2014 result that was broadly in line with its prospectus after stripping out acquisitions. Since listing a year ago, the company has announced acquisitions totalling $128 million, which should drive double-digit earnings growth for the next two years. We’re comfortable with the company’s acquisition mindset as SDF’s earnings stream is highly defensive with strong free cash flow generation. We’re buyers of SDF with a $2 price target. The shares finished at $1.605 on September 10.
HOLD RECOMMENDATIONS
Fletcher Building (FBU)
Chart: Share price over the year versus ASX200 (XJO)
A building products maker, FBU enjoys a dominant position in several markets. While a recovery in the New Zealand economy has been favourable for FBU, we believe the positive effect on near term earnings is included in the valuation. We’re happy to hold the stock at current levels, but believe further share price appreciation will be harder to achieve.
NIB Holdings (NHF)
Chart: Share price over the year versus ASX200 (XJO)
Provides a range of private health insurance products and solutions. The latest guidance for fiscal year 2015 was considerably weaker than implied two months ago. We think there’s likely to be downside pressure in the near term. In the long run, NHF offers strong earnings growth potential, which, at some point, will make it more attractive.
SELL RECOMMENDATIONS
Charter Hall Retail REIT (CQR)
Chart: Share price over the year versus ASX200 (XJO)
Owns a portfolio of supermarkets and shopping centres in Australia, New Zealand and the United States. CQR’s 2014 fiscal year operating earnings were at the bottom end of guidance. Next year, CQR has guided to earnings per share of 29.6 cents to 30 cents, implying no underlying growth. While CQR was recently offering a healthy 6.9 per cent yield, it trades at a 19 per cent premium to the value of its assets. We believe such a large premium provides little downside protection in the event of market volatility. We prefer to invest elsewhere.
Transfield Services (TSE)
Chart: Share price over the year versus ASX200 (XJO)
TSE has done well to achieve cost out and structural change through fiscal year 2014. But we’re concerned the share price isn’t reflecting the challenges in TSE’s end markets. We believe challenges include navigating continuing weakness in resources sector spending, increasing competition for operations and maintenance work and elevated gearing. We believe the recent share price bounce represents a good opportunity to take profits.
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